Better Business Bureau is warning consumers looking for payday or car title loans to research a company or website’s reputation and read all the fine print before giving your personal information or signing any agreements.
This year, BBB has received more than 3,300 complaints nationwide against payday lenders. Many of those complaints allege fraud — including companies initiating loans or withdrawing money without permission, or calling to collect a debt that the consumer claims was never owed. Other complaints allege poor customer service or unscrupulous collection tactics.
Consumer advocates have been warning those who are cash-strapped for years about the predatory practices of payday and car title lenders. These lenders offer short-term loans for those whose credit is not good enough to obtain a credit card or bank loan.
In Texas, payday and car title lenders are required to obtain a license and display a schedule of fees in a visible location in the store. However, a study by the Pew Charitable Trusts shows that those lenders are still allowed to charge high fees and interest rates.
The study also found that approximately 8 percent of adults in Texas have taken out a payday loan in the last five years, compared to 5.5 percent nationwide.
The fees and interest rates did prompt the federal government to take action — in 2006 Congress banned lenders from offering payday or car title loans to members of the military.
In 2008, the Federal Trade Commission warned that some of the fees on short-term loans can add up to 650 percent interest.
Austin resident Scott Tintera said he will never deal with a short-term lender again after his experience with a car title loan.
“It’s a rip off,” he said. “I’ll never do it again. You might as well just give your car to them after you get the money.”
Tintera said he had fallen behind on his payments, but called the company to work out a payment arrangement. He added that he called on a Wednesday to tell the company he would bring his payment in on Friday.
“They said it was no problem,” he said.
However, that Friday morning, a tow-truck driver showed up at his office to repossess his truck. He called his lender, and he said the woman who answered the phone acknowledged that she had agreed to the payment arrangement. However, Tintera added, her supervisor told the tow truck driver to proceed anyway.
“I’m sitting there, I’ve got the cash in my hand,” he said. “If I’ve violated my agreement, don’t tell me it’s OK. I would have made arrangements to pay sooner.”
Tintera said that his payment would have been $700. When he went to get his truck back, the company told him he would have to first pay off the entirety of the loan then pay several fees. The total amounted to thousands of dollars.
He did not have the money, so he said the company sold his truck.
“They pretty much just stole my truck is how I see it, because the payment was in my pocket,” he said.
The FTC advises consumers to consider alternatives to payday lending if they need money fast, including small bank loans, credit counseling and credit cards.
For those with no other option, BBB offers the following tips:
- Start with trust. Check out the company’s BBB Business Review to see its rating, history of complaints and other information.
- Never pay an up-front fee. Some short-term loan providers will ask for a post-dated check to cover the amount you borrowed plus interest and fees. However, if any lender asks for those fees in cash before giving you any money, walk away — especially if it’s an online lender asking for money via wire transfer. Charging up-front fees is illegal, and cash sent by wire cannot be traced.
- Limit the amount you borrow. Only borrow what you know you can pay off with your first paycheck. Most companies will allow you to “rollover” the balance for several weeks or months, but tack on fees the whole time. This can result in you owing several times what you borrowed in the first place.
- Know your rights. In Texas, payday lenders are required to disclose certain information before initiating a loan. That information includes the costs, how it compares to other loans and the interest rate if not paid in full. Members of the military enjoy even more protections, thanks to federal law.
- Read the fine print. Pay close attention to fees and consequences of non-payment. Will the company allow you to make arrangements if you cannot pay? How quickly will the company repossess your car?
- Keep your documentation. Many consumers said they started receiving calls from collections agencies years after they paid off a payday loan. Some of these calls were simple errors; others were attempts by scammers to collect a debt that is not owed. Protect yourself by having documentation that all loans were paid in full.
- Know where to turn. If you feel a lender has committed fraud or taken advantage, file a complaint with BBB, the FTC and the Texas Attorney General.